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When reason departs

In my last post, I pointed out that Greece's current depression is by no means the worst since World War II, as is often stated, and that the US's Great Depression was not the worst depression in history either. For reference, I'm putting up Tony Tassell's chart again.

I'm frankly appalled by the comments on that post. The arguments used to justify the prevailing views amount to the following.

1. The other countries in the list aren't rich Western countries, so they don't count.

Eh???

2. Depression in a time of war isn't really depression.

I doubt if the people of Syria would agree with this.

However, in support of this point (and taking into account point 1), Christos Savva kindly provides this chart:

What this chart shows us is that the two World Wars were bad for the GDP of Western countries, and REALLY bad for the GDP of the countries on the losing side. So if you want to avoid a really bad depression, make sure you always win wars. Unless you are America.

So, if we remove non-Western countries (point 1) and countries involved in wars (point 2), we are left with - what? Oh look, Greece and the US. Or, in Chart 1, just Greece (since the depressions in the Baltics and Bulgaria happened before they joined the rich Western European club). How remarkable.

But what is all this about "war doesn't count"? Seriously, Point 3 was actually made in a comment on my last post (though I am paraphrasing, of course):

3. Depressions caused by political decisions are worse than depressions caused by wars.

Presumably this means "morally worse", not actually worse. GDP falls are clearly far greater when war is involved.

I find this morally inexcusable. War is a political decision. How is a political decision that results in depression worse than a political decision that results in war?

Wars cause depression through killing people and destroying property. "Political decisions" that cause depression also kill people and destroy property, just more slowly and with lots of excuses about "this will be good for you in the long run". And all too often, depression leads to war, just as war causes depression.

So we should rewrite point 3 thus:

3. Depressions caused by some political decisions are worse than depressions caused by other political decisions. Even when they aren't.

But this is utterly illogical. Reason seems to have departed.

"Ah well," say some commenters, "the US's Depression was the longest and deepest PEACETIME depression". (Though Greece may overtake it soon.)

But what does "peace" mean, when banks are used as weapons? What is the difference between imposing sanctions on Russia, which restrict financial and trade flows, and forcing closure of Greek banks and imposition of capital controls, which restrict financial and trade flows? Both are a form of siege. Using military force to cut supply lines or seize resources is an outright act of war - though we often turn a blind eye even to this, as we did in Czechoslovakia in 1968 and Weimar in 1923. Sanctions are economic warfare, though we like to pretend we are not actually at war with the countries concerned. But restricting liquidity to Greece's banks is a peacetime activity, apparently. I'm sorry, but I see little difference. The effects are the same.

If Greece's depression is in "peacetime", would someone please define "peace"?

I think there is an extent to which argument is true - Greece is part of the EU, the depression is largely caused by factors that are well within the troikas control and thus the means of alleviating it lie largely within the EU. Contra-Syria, where essentially some form of military action would be part of a much bigger political settlement and dealing with the Iranians (as well dealing - in partnership with the US - with western allies like Saudi and Qatar who are fuelling the conflict).

So at least superficially there are fewer moving parts in the case of Greece - and so any kind of solution should be easier - ignoring questions about whether there is political will and/or public appetite to solve either issue.

War is meant to destroy GDP. That is the whole point of war. And, look at the graphs, war is very effective in doing that.

Fast Forward to Greece. The EU is meant to build prosperity for its citizens. It created institutions which should help in doing that, ECB, EIB, ECJ, EU Parliament, etc. Result: Slightly less destructive than war, as far as Greece is concerned.

Or, looking at it the other way, only willful destruction from war will better the record of the "prosperity" building institution like the ECB.

(I didn't comment on the previous post, but my reaction to the Tessel chart was 1) neither the Great Depression nor the Greek debacle were the largest depressions ever - hadn't realy thought that but it has been written here and there, 2) Greece is on the same chart as countries exposed to wars, insurrections, and other major disruptions, 3) for Greece the EZ has been almost as detrimental (from an economic aspect) as these other disruptions, and 4) the Troika disruption is far from over - Greece can still overtake a number of countries in the Tessel chart.)

The past is a very complicated and messy place that does not bear simplification. In any case GDP etc is what is measured, the trouble is that in the past and during wars what is may not entirely be measured in any organised. sense. This was certainly the case during WW2 in my experience. As for what will be................

I think that that a supply-side depression (like in wars, famines, droughts, etc.) are a qualitative different thing than a demand-side depression (like the depressions occured in rich and peaceful countries). I am not saying that one is "good" than the other, I am only saying that are different things (that perhaps should not even have the same name)

Who has said Greece's depression the worst hat has ever occurred. That seems to me a red herring.

As I have said in the previous post the depression in Greece was imposed on them. That is entirely different. Indeed the troika promised a grand recovery. And what have they done when their promises did not occur. Impose even greater austerity so Greece remains in a depression.

Surely the point is whether the shock is to demand or supply. Although not exclusively the case, war is a negative supply shock, but Greece (and the US) primarily suffered extraordinary demand shocks. Examples of these are near impossible to find, at least since the advent of central banking, especially in developed countries that should have the institutions and policy tools to prevent them.

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